India’s June services activity shrinks at fastest rate in 11-months

Activity in India`s dominant services sector contracted sharply in June as tighter restrictions to contain a resurgence of coronavirus cases hammered demand and forced firms to shed jobs at a rapid clip, a private survey showed on Monday.

Asia`s third-largest economy, which has already recorded more than 400,000 COVID-19 deaths, is still reporting over 40,000 coronavirus cases per day, taking the total number of infections to over 30.5 million.

IHS Markit`s Services Purchasing Managers` Index plunged to 41.2 last month from an already depressed 46.4 in May. That was its lowest reading since July 2020 and well below the 50-level separating growth from contraction.

"Given the current COVID-19 situation in India, it was expected that the service sector would take a hit," said Pollyanna De Lima, economics associate director at IHS Markit.

"PMI data for June showed quicker declines in new business, output and employment that were sharp but much softer than those recorded in the first lockdown."

Muted demand sank the new business sub-index to its lowest since July 2020.

As a result, firms shed headcount for a seventh straight month, with the fastest reduction rate recorded in June. A Reuters poll taken around a month ago showed the job crisis may worsen over the coming year. [ECILT/IN]

The depressed services sector results are in line with the overall downturn in business activity, underscored by a sister survey on Thursday which showed manufacturing activity contracted for the first time in almost a year in June.

Input prices rose again last month on high raw material and transportation costs, indicating inflation could stay above the Reserve Bank of India`s comfort range of 2-6% in coming months.

India`s retail inflation rose above 6% in May to a six-month high. Yet the RBI is not expected to tighten monetary policy this fiscal year as it looks to support economic growth.

The contraction in both manufacturing and services activity sent the overall composite index plunging to 43.1 in June from 48.1 in May.